Is Electoral Bond a retrograde step for transparency in political funding?

27 Nov, 2017

"The name's Bond, Electoral Bond - a sovereign guarantee of donor secrecy for political party funding!" In the near future, this is how an Electoral Bond might introduce itself to large donors (money-wise, not girth-wise or chest size) to seduce them to put money in the pockets of any political party (with apologies to Mr. James Bond immortalised on the silver screen by Sir Sean Connery, the Late Sir Roger Moore, Pierce Brosnan, Daniel Craig and others).

Readers may recall the "big idea" of Electoral Bonds(EB) that was announced in the Annual Budget presented in Parliament, in February, 2017. The Government amended three laws relating to elections, income tax and the Reserve Bank of India (RBI) to create this new method of making monetary donations to political parties. Briefly explained, anybody will be able to buy EBs in the form of bearer bonds from a designated commercial bank for any sum of money and donate it anonymously to a political party that he, she or it (private entity) chooses. A donor could have these bonds hand delivered through one's chauffeur or gardner and the recipient political party will not be required by law to ask any questions.

These amendments remove the obligation of political parties to record and report the identity of EB-style donors to both regulatory bodies, namely, the Election Commission of India and the Income Tax Department (IT Dept.). Ironically, in his Budget speech, the Hon'ble Finance Minister used the sub heading: "Transparency of Electoral Funding" to crown the description of the EB scheme (paras #164-165). Soon after this announcement, news reports indicated that the Government would hold a consultation with stakeholders, namely, the political parties, the Election Commission of India (ECI) and the RBI before operationalising this scheme. More recent reports indicate that the Government is finalising the EB scheme for implementation.

It looks like everybody in the establishment forgot to consult the primary stakeholder- namely, the voter-taxpayer-citizen who also makes donations to political parties but also wants transparency in political party funding.

Now despite being reportedly involved in the consultation process, the Finance Ministry, the ECI and the RBI have all claimed under RTI, that they do not have any information about the EB scheme or who influenced the Government to launch such a scheme.

The Quest for Transparency

The inspiration for this RTI intervention comes from the Hon'ble Prime Minister's speech delivered at the inaugural session of the 10th Annual RTI Convention hosted by the Central Information Commission, in October 2015, where he said:

"The question is why can’t we be proactive in making available information to the people so that they don’t have to struggle to obtain the same? Democracy and governance should focus on a seamless flow of information to the people… I feel that RTI is now being used for limited purposes. Some of the information obtained under this act may benefit media to some extent and others might succeed in addressing their grievances. As such, we know of the process of obtaining information by the seekers but never sure of the end product or the outcomes. What I want to highlight is that when an RTI activist seeks information about a bridge contract, he gets to know about the tendering, when the project was commenced, site selection and all other related file notings. Time has now come for such activists to pay attention to know about the quality of bridge construction including if the same was faulty and whether such faults if any were addressed or not. By focusing both on the processes and final products or outcomes, we can bring about phenomenal changes. Otherwise, information so obtained would at best meet the ends of personal satisfaction. RTI should be used, first and foremost, to bring about a positive change in the governance." [emphasis supplied] (text downloaded from the website of the Press Information Bureau)

So almost six months after the Budget Speech was made in Parliament (presuming that the Government might have worked out the details of the EB scheme), I filed an RTI application with the Department of Economic Affairs (DEA) in the Ministry of Finance, seeking the following information about Electoral Bonds:

"Apropos of paras #164-165 of the Budget-related speech of the Hon’ble Finance Minister delivered in the Lok Sabha on 01 February, 2017 relating to the issuance of Electoral Bonds, I would like to obtain the following information from your public authority:

1) The total number of representations or petitions or communications, by whatever name called, received by the Government of India, till date, from donors regarding the need for maintaining confidentiality of their identity while making donations to political parties;

2) A clear photocopy of all representations or petitions or communication by whatever name called, described at para #1 above;

3) A clear photocopy of the Draft Electoral Bond Scheme prepared by your Department for consultation with the Reserve Bank of India and the Election Commission of India."

As the Hon'ble Finance Minister said in his speech that donors to political parties had expressed their unwillingness to make their identity known publicly, the first two questions were drafted to ascertain the total number of representations received in favour of secrecy and the justification they offered. The third question was aimed at getting a copy of the draft EB scheme, so that citizens would be able to discuss the detailed proposals, being the primary donors to political parties. The Government has not placed any of this information in the public domain till date.

The DEA did not send any reply to the RTI application for more than 30 days. So after 40 days I filed a first appeal. The First Appellate Authority directed that the RTI application be transferred to:

1) The Election Commission of India (ECI),

2) The Department of Financial Services (DFS which supervises Banks through which EBs will be sold) and strangely,

3) the Coordination Section of DEA.

DEA transferred the RTI application to ECI and DFS within 24 hours saying that the subject matter of EB does not pertain to them. DFS also quickly transferred the RTI application to RBI.

Eventually, both ECI and RBI replied that they did not have any information sought in the RTI application. It appears that the records relating to the draft EB scheme are themselves being held in great secrecy. Nobody wants to acknowledge that they did any work on it. Secrecy seems to be the guiding principle for the EB scheme even before it is operationalised to keep donor identity secret.

Soon I will file a complaint with the Central Information Commission to determine who holds these records.

What is problematic with the EB scheme?

Within 24 hours of the publication of the Budget Speech in Parliament, I had sent out an email alert analysing the EB scheme as a backward leap into the era of secrecy. Briefly reiterated the critical issues around the EB scheme are as follows:

1) Until 2017, all registered political parties are required to disclose to the ECI, the identity of individuals and private entities donating more than Rs. 20,000/- (=USD 310 where USD1 = INR65) every year. The ECI publishes these contribution reports on its website soon after receiving them. The Finance Act, 2017 (one of the Bills relating to the Annual Budget) amends Section 29C of The Representation of the People Act, 1951to remove the obligation of political parties to keep a record of the identity of donors who give any sum of money through EBs or report the same to the ECI annually. As EBs protect the identity of donors, they are likely to become the default option for making donations. Citizens will know lesser and lesser about who is making donations to which political party. This will take India back to the pre-NDA-I era when the transparency requirement under Section 29C was introduced. NDA-II is undoing the transparency regime established during the Atal Behari Vajpayee-era

2) Until 2017, under Section 13A of the Income Tax Act, 1961all political parties registered with the ECI were required to maintain details of donations of Rs. 20,000/- and above, received from any source, and have them audited. These were essential requirements for every political party to get exemption from paying income tax every year. The Finance Act, 2017, absolves all political parties from the duty of keeping records of donations received through EBs. So these donations will not be audited either. Thanks to the EB scheme of secrecy, political parties will escape the scrutiny of the Income tax Dept. for donations received in this manner unless they source the information from the Bank that sold the EBs to any buyer.

3) As of now, private corporations can donate not more than 7.5% of their average net profits made during the immediately preceding three financial years. Such donations had to be approved by a Resolution of the Board of Directors. Every private company making such donations is required to publicly disclose in its profit and loss account how much money is donated to which political party in a given year. The Finance Act, 2017, removed all these transparency requirements from Section 182 of the Companies Act, 2013. April, 2018 onwards, a private corporation will be able to make donations from Day 1 without starting commercial operations, let alone earning profits. There will be no obligation to publicly disclose the amount so donated and the identity of the recipient political party. Only the total sum of money so donated will be reflected in the profit and loss account of the company every year. So EBs are likely to become the preferred route for such companies to make donations to political parties of their choice and escape public scrutiny.

These amendments listed above are highlighted in the text of The Finance Act, 2017. In fact, one wonders if the EB scheme seeks to conform to a ridiculous extreme with Jesus Christ's preaching about performing charity in secrecy (for the sake of humility):

"But when you give to the needy, do not let your left hand know what your right hand is doing" (Gospel of Matthew 6:3)

Further, while ordinary citizens have to cite Aadhaar/PAN numbers for almost every public transaction (in banks or while buying jewellery) or public action (such as buying ration or registering one's marriage), donations to political parties through EBs will be exempt from such requirements. Two classes of public transactions are being created and will be treated differently- a large number transactions where proof of identity is a must for making them valid before the law and another where the law itself encourages and protects anonymity of the transaction.

The legislative process also was not kosher

The amendments carried out through The Finance Act, 2017 were also done in a manner that prevented a vote in the Rajya Sabha. They were all introduced in the Finance Bill which was certified by the Speaker of the Lok Sabha as a Money Bill even though they violated the definition of a "Money Bill" provided in Article 110 of the Constitution. The Rajya Sabha can only discuss a Money Bill, but not vote on it. So the Upper House was arm twisted into submission on these proposals. Hopefully, the Supreme Court of India will examine all these issues in detail when it takes up the public interest litigation suit (PIL) filed by some civil society actors including the Association for Democratic Reforms.

Political Parties have resisted transparency of their financial dealings

When the Central Information Commission declared six national level political parties, "public authorities" under the RTI Act, in June 2013, they resisted transparency tooth and nail. They continue to remain non-compliant without seeking judicial remedy against this order. Instead, they preferred amendments to the electoral law for greater transparency of their financial dealings. Now the Government seems to be blocking that route as well and the opposition parties have not made it clear as to "how much they would like to bond with the Electoral Bonds scheme".

Electoral Bonds, if implemented in present form, will bring the era of transparency in political party funding to an abrupt end, contrary to the trend across the world which is for ever greater transparency in order to make them more accountable to the people. All concerned citizens and civil society groups must question such retrograde measures and demand greater openness from the Government and all others involved in the decision making process.

In the era of competitive patriotism, defending openness in political party financing might have to become a "patriotic duty". This will be more constructive than the recent demands made by some self-appointed defendants of the "popular sentiment" for cutting off the noses and heads of some celluloid celebrities.